[In today’s special guest essay, Paradigm’s macro expert Jim Rickards argues that most investors — and even the Federal Reserve — misunderstand what actually drives inflation.

Instead of focusing solely on money printing or rising prices, Jim explains why one often-overlooked force can determine whether inflation accelerates, fades or catches markets completely off guard. Read on for Jim’s full essay.]

In order to understand inflation, it’s important to get some definitions straight.

Some analysts claim that higher asset prices are inflation. They’re not. Real estate and stock prices may be soaring, but that’s an asset bubble, not inflation. Asset bubbles have their own dangers, but calling them inflation just confuses the analysis.

Other analysts are hard-shell monetarists who echo Milton Friedman’s mantra that “inflation is always and everywhere a monetary phenomenon.” That’s not true either.

Friedman was a great humanitarian and advocate for personal freedom, but his economic models were mostly wrong. Today, Friedman’s followers are obsessed with the money supply, but they don’t have a sound definition of money and they disregard the velocity of money.

Even the Federal Reserve does not understand inflation as well as most people assume.

I could explain all of their measures of inflation, but I won’t waste your time. It’s all Fed junk science concocted by staff economists with not enough to do.

The missing ingredient in most inflation discussions is velocity.

Velocity is simply the turnover of money. If you give me a dollar and I put it in the bank, that money has a velocity of zero because it created zero GDP.

If you give me a dollar and I buy a candy bar, and the merchant pays his employee, and the employee takes an Uber home, that dollar has a velocity of three because it supported $3.00 of goods and services: the candy, the paycheck and the Uber ride.

There’s more to it, but that’s the basic idea.

Money supply by itself doesn’t tell us much about inflation. An increasing money supply with falling velocity can actually be deflationary. A flat money supply with increasing velocity can be highly inflationary.

The world tends to focus on money creation, especially “Fed printing,” but it ignores velocity. That’s a mistake.

Inflation is not all about money supply. Watch the velocity.

Your Rundown for Friday, July 10, 2026...

Not All Inflation Is Created Equal

But when it comes to inflation, the Fed is the all-purpose bogeyman. The Fed, however, has almost nothing to do with it.

Inflation actually comes from three places:

Supply Side: Supply-chain disruptions, war, oil embargoes, extreme weather and natural disasters can all cause shortages and higher prices. Something like this is happening now.

Demand Side: Easy money from commercial banks, consumer willingness to borrow and a “buy now before the price goes up” mentality can all cause higher prices. This happened in 1977–1981.

Fiscal Policy: Fed monetary policy may be irrelevant, but government fiscal policy is not. When you cram too much public spending into an economy that’s near capacity, you will get higher prices. That’s what happened after the Biden-Pelosi spending spree in 2021 and 2022.

Supply-side inflation involves physical constraints. Demand-side inflation is mostly psychological and involves behavioral changes. Fiscal policy is a choice, but never underestimate the ability of Congress and the White House to make the wrong choice.

Supply-side inflation is the easiest to stop. It tends to burn itself out.

Traders say, “The cure for high oil prices is high oil prices.”

In other words, when oil prices and transportation or heating costs generally are high, you get demand destruction and substitution. People drive less. They take the bus. They turn down the thermostat or wear a sweater in the winter. They buy chicken instead of beef. They do whatever it takes to beat inflation.

The result is that prices gradually come down on their own. The dynamic behind the price decline is falling velocity.

Demand-side inflation is the most difficult to stop because it involves consumer psychology, not government policy. Once it starts, it feeds on itself.

Unions demand higher wages. Landlords raise rents. Consumers race out to buy a new TV or car because they expect prices to be higher in a few months, and they may be right about that.

This can be driven by a combination of increased bank lending and higher velocity of money. It takes a lot to break the consumer mentality. It usually takes a recession. Ask Paul Volcker.

Fiscal-policy inflation is a policy choice. It may get worse or fade away depending on what each Congress does with the budget. It usually comes to an end when voters throw the bums out.

That’s what happened in the 2024 election when Democrats lost the White House and Congress after the 9.1% inflation peak in 2022, the highest since 1982.

My forecast for inflation is that it will continue to rise for several months due to supply-chain disruption and higher energy prices.

Starting late this year, I expect inflation will drop sharply due to more plentiful oil, improved supply chains and higher unemployment. Velocity and money supply will decline in tandem.

For capital markets, money is energy and inflation reveals the true value of money.

Market Rundown for Friday, July 10, 2026

S&P 500 futures are up slightly to 7,589.75.

Oil is up 0.19% to $72.04 for a barrel of WTI.

Gold is down 0.75% to $4,109.80 per ounce.

And Bitcoin is up 1.84% to $64,336.23.